Detroit bankruptcy

[10] After a two-month trial, Judge Steven W. Rhodes confirmed the city's plan of adjustment on November 7, 2014, paving the way for Detroit to exit bankruptcy.

[17] The report stated that Detroit is "clearly insolvent on a cash flow basis" and that the city would finish its current fiscal year with a US$162 million cash-flow shortfall.

[21] Additionally, Michigan decreased state revenue sharing with Detroit due to declining population numbers reported in the 2010 census.

[21] Financial expenses included certificates of participation to finance $1.6 billion in debt, which required termination payments as a result of the city’s low credit rating.

[25] Some of the named causes for the bankruptcy are the shrinking tax base caused by declining population, program costs for retiree health care and pension, borrowing to cover budget deficits (since 2008),[28] poor record keeping and antiquated computer systems,[1] that 47% of owners had not paid their 2011 property taxes,[29] and government corruption.

[37] Yields on bonds issued by the city of Detroit increased on July 18 to record highs, as investors considered the potential effects of the bankruptcy filing.

The offer by Kevyn Orr to settle these for less than 20% face value, and doubts regarding the willingness of Michigan to assume the debts, was predicted to drive up borrowing costs of nearby municipalities.

Both Snyder and Orr acknowledged concerns raised about the expense, but stated that continuing the project makes good economic sense even with the context of Detroit's bankruptcy.

With the arena, and additional retail, office, residential and hotel space the developer has committed to build as part of the overall project, it is expected to create about 8,000 construction jobs, with work due to start in 2014.

[45] On July 19, 2013, Ingham County Circuit Court Judge Rosemarie Aquilina ruled, using a typed statement with hand-written notes attached, that the bankruptcy filing by Detroit violated the Michigan constitution by impairing pension payments and ordered Snyder to withdraw the filing: Snyder has appealed the motion, and Aquilina indicated she was sending a copy of her ruling to President Obama.

Rhodes then granted the federal stay and ruled that Orr is a validly authorized officer to act for the city in the bankruptcy.

Rhodes ordered that three suits filed by city employees, retirees and pension funds in State Court be halted.

Schuette's office also represents Snyder, who favors cuts to Detroit's public pension plans as an element of restoring the city to financial stability.

Any mediation proceedings held will be confidential, except for the terms of any settlement that may be reached and presented to the bankruptcy court for approval.

[66] Attorney General Schuette filed a statement that his office does not contest Detroit's eligibility for Chapter 9, but does object, and will continue to object, to Detroit's ability through the bankruptcy process to diminish its retiree pension benefits in light of the Michigan state constitutional prohibition against impairment of these vested obligations.

Frank Schafroth, director of the Center for State and Local Leadership at George Mason University, commented that the choice not to object on eligibility reflected lessons learned in the Stockton, California, Chapter 9 case.

An attorney for some of the bondholders in Detroit's case commented that they felt it was better to have the bankruptcy judge as a referee rather than to deal only with Orr on the terms of his severe pre-bankruptcy proposal to the bond groups.

At the same time, Rhodes reserved issues requiring factual determinations, such as whether Detroit negotiated in good faith with its creditors before filing the bankruptcy case, for the October 23 trial.

[71] In his ruling the judge determined that Detroit is insolvent, and that the city could not have practically negotiated on a plan of adjustment pre-bankruptcy with its thousands of creditors.

[76] On December 16, 2013, Judge Rhodes granted motions by AFSCME and the pension funds permitting direct appeal to the Sixth Circuit.

After the Chapter 9 eligibility ruling, emergency manager Kevyn Orr said the city will seek to file a plan for adjustment of its debts under bankruptcy law by early January.

[81] One of the biggest issues facing litigators of Detroit's bankruptcy was which assets belong to the city outright and those that were available to creditors in order to satisfy liabilities.

Rosen's plan sought commitments for over $800 million over the next 20 years from foundations, private donors, the DIA, and the state that would be used to shore up underfunded pensions.

[83] Rhodes would later stun those following the proceedings, in what would be known as the Christmas Eve Massacre, when he rejected the settlement three weeks later, saying that it was "just too high a price to pay.

The DIA initially offered $50 million toward the Grand Bargain; the city, governor and others pushing for the deal viewed that as too low to get the state legislature on board.

On September 10, Detroit reached a deal with three Michigan counties over regional water and sewer services that could eliminate one roadblock to federal court approval of the city's plan to adjust its debt and exit bankruptcy.

After demolition, FGIC would receive the arena site and an adjacent parking lot, giving the company nearly 9 acres (3.6 ha) for redevelopment.

At the hearing Rhodes remarked, "We have used the phrase 'the Grand Bargain' to describe the group of agreements that will fix the city's pension problem.

[91][92] In the years following the bankruptcy filing in 2013 and subsequent bargaining, there has been major private investment and development in Detroit, including in the downtown, Midtown, riverfront, Corktown, and New Center areas.

A Forbes article published in 2018 notes that “Detroit has yet to witness the full economic impact of its resurgence,” predicting an additional five to ten years of rebuilding.